In a significant order, the Bombay high court has held that the union government cannot ban exports of any product with restrospective effect and further said that such restriction cannot be applied to concluded contracts where letters of credit were opened prior to the imposition of the ban.

The order was passed on a petition filed by Parag Milk Foods Pvt Ltd challenging the government notification issued on February 18 this year, banning export of milk products to meet the demand in domestic market.

"We way of interim relief, we direct the respondents (government) to permit Parag Milk Foods Pvt Ltd to export 414 metric tonnes of skimmed milk powder in accordance with the concluded contract supplied by irrevocable letters of credit issued on February 17 this year, a day before the ban was imposed," observed a bench headed by chief justice Mohit Shah.

The bench further ruled that in case the petitioners were not able to make any shipping arrangement for export of 414 metric tonnes of milk powder, it would be open to them to take necessary steps for extending the date of shipment and the letters of credit for this purpose.

The judges, however, said "We make it clear that it will be open for the union of India to file further affidavit in reply if it finds that any of the letters of credit relied upon by the petitioner in this petition were actutally not opened prior to February 18 when the ban was imposed".

Petitioner's counsel Prafulla Shah pleaded that Parag food products was not challenging the ban on exports of milk powder but was questioning the government move to impose it with retrospective effect, particularly when the company had entered into a contract and opened a letter of credit with a foreign buyer.

The petitioner argued that it had entered into two contracts for sale of milk powder to foreign buyer under the concluded contract opened by the latter (foreign buyer) and that the company was required to export metric tonnes of milk powder before April 25, 2011 and ship another quantity of 700 metric tonnes by June 15 this year.

It was submitted that the second letter of credit was opened on January 12, 2011.

CounselShah submitted that the company would lose its business and reputation and will not get export orders in future if it was not allowed to honour concluded contracts entered into with foreign buyers for which letters of credit were opened before the imposition of ban.

Shah argued that the petitioner was not challenging ban on export of milk products but was seeking that such a ban could not be applied to concluded contracts where letters of credit were opened prior to the ban.

The union government, on the other hand, opposed the grant of interim relief saying that there is acute shortage of milk powder in the country and such relief would frustate the purpose of export ban.

Government counsel R V Desai submitted that after the issuance of the first notification on February 18, imposing ban of export of milk products, another notification on March 24 relaxed the ban on milk powder to the extent that such restriction would not apply to milk powder shipments which were handed over to customs for examination on or before February 18.

The bench has kept the matter for final hearing on June 6.